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Getting Trade Policy and Prescription Right

By William A. Reinsch

April 30, 2018

In an odd way, the Trump administration may be making progress in its
approach to trade. It began with ideas that identified wrong problems and
offered wrong solutions, most notably the president’s fixation on bilateral
deficits as the single indicator of a trade relationship. Lately, however,
it has moved on to coming up with right problems and wrong solutions, the
most obvious case being China, where there is widespread agreement that the
administration’s diagnosis of what the Chinese are doing is correct and
important. Unfortunately, the proposed solution—at this point, mostly
tariffs—won’t solve the problem and will cause a good bit of collateral
damage. However, as the experts tell us, recognizing the problem is the
first step toward a cure, so we appear to be making progress.

Meanwhile, another right problem–wrong solution issue appeared on trade
wonks’ radar screens some time ago—in the last administration, actually—and
is now beginning to attract the attention of a broader audience as we
slowly waddle toward disaster. That issue concerns the World Trade
Organization (WTO) Appellate Body.

For those of you who don’t follow these things closely, the Uruguay Round,
which created the WTO, included a revised and strengthened dispute
settlement process. The strengthening was to prevent dispute settlement
panel decisions from being blocked by the losing party, which had been the
practice under the General Agreement on Tariffs and Trade (GATT). In the
WTO, a ruling could only be blocked by consensus—all parties would have to
agree. The revision was meant to institutionalize and formalize the process
by which complaints were considered. The new structure contained the
traditional approach of a panel of experts—none from the countries involved
in the dispute—to examine the allegations, hear from both sides, and make a
decision. The new feature was an Appellate Body, consisting of seven
experts serving fixed four-year terms (with a second term permitted), that
would, on appeal by one of the parties to a case, review the initial
panel’s decision and either affirm or modify it, in whole or in part.

The problem, in a nutshell, is Appellate Body overreach. The very clear
understanding at the time of its creation was that it would rigorously
confine itself to adjudicating the obligations laid out in GATT and WTO
agreements. Ambassador Robert Lighthizer has expressed this in terms of
interpreting a contract, where the parties have taken on defined
obligations, and no more. Actual practice has shown otherwise, as the
Appellate Body has not hesitated to interpret WTO rules broadly and
effectively make new ones by filling in gaps in the existing ones. Most of
the cases that involve the United States are related to enforcement of our
antidumping and countervailing duty laws, with other countries arguing that
either our law or, more often, our interpretation of our law, conflicts
with our WTO obligations. Many of those cases involve the so-called zeroing
issue, where the United States made a good faith effort to address the
WTO’s concerns without much effect. Those debates get into the weeds really
quickly, and there is no room here to go through them, for which most
readers will be grateful. Suffice it to say that most U.S. practitioners,
along with a good number of foreign practitioners, would agree that the
Appellate Body has exceeded its mandate and is creating new rules that go
beyond the limits of what was agreed to in the Uruguay Round.

The U.S. “remedy” for this problem has been to starve the Appellate Body to
death by refusing to permit new appointments to it. As a result, the seven
are currently four and will be down to three in September, which will make
it between difficult and impossible for them to do their work at a time
when their caseload is growing. It is hard to imagine a less productive
tactic, both for the viability of the organization and for the United
States, which has been a frequent user of the appeals process. Worse, by
refusing to suggest a path to resolution, the U.S. strategy appears to be
to destroy the village in order to save it. That did not work out very well
for us the last time we tried it, and this time will not be different.
Trying to start over in a divided organization that operates by consensus
is not going to produce a better alternative. Instead we will weaken the
institution and leave ourselves with nowhere to go when we lose a case.
Once again, right problem, wrong solution. I live for the day when I can
write about both right problems and right solutions coming from the
administration, but sadly, we are not there yet.

William Reinsch holds the Scholl Chair in International Business at the
Center for Strategic and International Studies in Washington, D.C.

Commentary
is produced by the Center for Strategic and International Studies
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CSIS does not take specific policy positions. Accordingly, all views,
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understood to be solely those of the author(s).